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Owning or buying into a strata scheme in NSW means sharing responsibility for the long-term upkeep of your building. At the centre of that responsibility sits the capital works fund, a financial safety net that, when properly managed, keeps special levies at bay and building values intact. Whether you are a committee member planning next year's budget or a buyer doing due diligence before exchange, understanding how these funds work is one of the most important things you can do for your financial wellbeing.

What Is a Capital Works Fund?

A capital works fund (previously known as a sinking fund) is a reserve account held by an owners corporation to cover the cost of major, non-routine repairs and replacements within a strata scheme. Think lift overhauls, roof replacements, waterproofing works, façade repairs, and common-area upgrades, which are costs too large to absorb through quarterly levies alone. Under the Strata Schemes Management Act 2015, all owners corporations are legally required to establish and maintain a capital works fund, with contributions collected through levies set at each annual general meeting based on a 10-year capital works plan.

The fund is entirely separate from the administrative fund, which covers the day-to-day running costs of the scheme, such as gardening, cleaning, insurance premiums, and routine maintenance. Mixing the two up, or drawing from one to cover the other, is a common source of financial trouble in strata schemes.

How Capital Works Funds Are Planned and Budgeted

Good capital works planning starts with a detailed 10-year forecast. A qualified quantity surveyor or strata specialist inspects the common property and produces a schedule of anticipated major works, including when each item is likely to need attention and what it is expected to cost. The owners corporation then determines the annual contribution needed to accumulate sufficient funds by the time each item falls due. The NSW Fair Trading guidance on maintenance and repairs is a useful reference for understanding what falls within an owners corporation's maintenance obligations and what the capital works fund should be planning for.

Levies are approved by owners at the AGM, but the committee is responsible for putting forward a well-researched budget. Professional strata managers, like those at Strata Community Association, can assist committees in developing budgets that are realistic, defensible, and aligned with the building's actual condition. For a broader explanation of how strata fees are structured and what they cover, the Strata One resource centre is a good starting point.

When Special Levies Are Raised and Why

A special levy is an additional, one-off contribution required from lot owners when the capital works fund has insufficient money to cover an unexpected or underestimated expense. They are not inherently a sign of poor management, as sometimes genuinely unforeseen defects or emergency repairs arise, but they are frequently the result of chronic underfunding over many years. Common triggers include remediation of water ingress or structural defects, compliance upgrades, emergency repairs following storm or flood damage, and projects that were consistently deferred and whose costs have compounded over time.

Special levies can be raised at any general meeting and must be approved by ordinary resolution, with contributions calculated based on lot entitlements. For owners on fixed incomes or tight budgets, a sizeable strata special levy can come as a serious financial shock. Understanding why a special levy has been raised and whether it reflects a one-off event or a pattern of underfunding is critical for both current owners and prospective buyers.

Reading Your 10-Year Capital Works Plan

The 10-year capital works plan is one of the most important documents in a strata scheme's financial records. When reviewing it, start by looking at the projected fund balance over the forecast period. A well-funded scheme should show a balance that remains comfortably positive throughout, with contributions calibrated to meet upcoming expenditure without sudden spikes. If the balance trends downward toward zero or dips below it, that is a warning sign worth investigating further.

Next, examine the assumptions behind the projections, including the interest rate applied to accumulated funds, the inflation rate used to escalate future costs, and how recently the building was physically inspected. Compare the projected annual contributions against what has actually been collected, because a history of owners voting to reduce levies below the recommended amount is a telling indicator of a fund heading toward trouble. Knowing where your strata levies are really going is the first step toward holding the right people accountable.

Warning Signs: Underfunded Capital Works

An underfunded capital works fund is one of the most common and costly problems in NSW strata schemes. Key red flags include a fund balance that has been flat or declining for several years despite regular levies being collected, repeated deferral of major works items from one AGM to the next, a 10-year plan that has not been updated in more than five years, and a history of special levies being raised to cover works that should have been anticipated.

From a building condition perspective, visible deferred maintenance such as peeling paint, cracked render, aging lifts, or poorly maintained common areas often indicates that the capital works fund has not kept pace with the building's needs. If you are a lot owner and suspect your fund is underfunded, engaging a strata manager or financial consultant to review the fund's position is a sensible first step. The strata manager can also assist with levy and debt collection where owners have fallen behind on contributions, which compounds funding shortfalls further.

How Capital Works Planning Influences Apartment Values

The state of a strata scheme's capital works fund has a direct and measurable impact on property values. Buyers and their conveyancers routinely request strata records, including the capital works plan, fund balances, and levy history, as part of pre-purchase due diligence. A scheme with a healthy, well-funded capital works reserve signals to buyers that the building is well managed and that future ownership costs are relatively predictable, while a fund sitting well below its recommended balance raises serious concerns about hidden costs ahead.

For sellers, the financial health of the owners corporation is partly your problem too. A well-maintained building commands premium prices, while a scheme with looming remediation works and an underfunded sinking fund tends to attract heavily discounted offers. There are practical ways to increase the value of a property in a strata scheme, and sound capital works planning is one of the most effective of all.

How Strata One Helps Committees Plan Long-Term

Long-term financial planning in strata is a specialist discipline, and one that many volunteer committees are not equipped to handle alone. Strata One works with owners corporations across NSW to develop capital works strategies that are grounded in the real condition of the building, compliant with the Strata Schemes Management Act 2015, and pitched at levy levels that owners can support. Our approach starts with reviewing your existing 10-year plan, assessing whether contribution levels are adequate, and identifying any gaps between projected and actual fund balances.

We also help committees communicate the results to owners in a way that builds understanding rather than resistance. Owners who understand why levies need to increase, and what happens to their investment if they do not, are far more likely to support the budget at the AGM. Where the plan is outdated or based on unrealistic assumptions, we work with qualified assessors to produce an updated forecast that reflects the building's true condition and needs.

Is Your Building Financially Prepared? Find Out Before It Costs You.

Capital works planning is not a once-a-decade exercise. It is an ongoing discipline that protects owners, supports property values, and keeps special levies where they belong: as a last resort rather than a recurring event.

Request a capital works and levy review for your building today. Strata One's team will assess your fund's current position, identify any risks, and give you a clear picture of what is needed to keep your scheme on solid financial ground. Get in touch with our team to book your review.